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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission file number: 001-37851

 

AIRGAIN, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

95-4523882

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

3611 Valley Centre Drive, Suite 150

San Diego, CA

 

92130

(Address of Principal Executive Offices)

 

(Zip Code)

(760) 579-0200

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0001 per share

AIRG

Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No

 

As of May 6, 2022, the registrant had 10,189,236 shares of common stock (par value $0.0001) outstanding.

 

 


 

AIRGAIN, INC.

Form 10-Q

For the Quarter Ended March 31, 2022

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

 

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Comprehensive Income (Loss)

5

Condensed Consolidated Statements of Stockholders’ Equity

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Condensed Consolidated Financial Statements

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3. Quantitative and Qualitative Disclosures about Market Risk

27

Item 4. Controls and Procedures

27

 

 

 

 

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

28

Item 1A. Risk Factors

28

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3. Defaults Upon Senior Securities

28

Item 4. Mine Safety Disclosures

29

Item 5. Other Information

29

Item 6. Exhibits

29

 

 

SIGNATURES

30

 

 

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Airgain, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par value)

(Unaudited)

 

 

March 31, 2022

 

December 31, 2021

 

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

18,655

 

$

14,511

 

Trade accounts receivable, net

 

8,179

 

 

10,757

 

Inventory

 

8,719

 

 

8,949

 

Prepaid expenses and other current assets

 

1,447

 

 

1,272

 

Total current assets

 

37,000

 

 

35,489

 

Property and equipment, net

 

2,647

 

 

2,698

 

Leased right-of-use assets

 

2,686

 

 

2,777

 

Goodwill

 

10,845

 

 

10,845

 

Intangible assets, net

 

13,472

 

 

14,229

 

Other assets

 

345

 

 

352

 

Total assets

$

66,995

 

$

66,390

 

Liabilities and stockholders’ equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

$

7,043

 

$

5,474

 

Accrued compensation

 

1,468

 

 

2,013

 

Accrued liabilities and other

 

3,776

 

 

2,833

 

Short-term lease liabilities

 

844

 

 

841

 

Deferred purchase price liabilities

 

8,726

 

 

8,726

 

Total current liabilities

 

21,857

 

 

19,887

 

Deferred tax liability

 

117

 

 

109

 

Long-term lease liabilities

 

2,198

 

 

2,221

 

Total liabilities

 

24,172

 

 

22,217

 

Commitments and contingencies (Note 16)

 

 

 

 

Stockholders’ equity:

 

 

 

 

Common stock and additional paid-in capital, par value $0.0001, 200,000 shares authorized; 10,730 shares issued and 10,189 shares outstanding at March 31, 2022; and 10,638 shares issued and 10,097 shares outstanding at December 31, 2021

 

108,142

 

 

106,971

 

Treasury stock, at cost; 541 shares at March 31, 2022 and December 31, 2021.

 

(5,364

)

 

(5,364

)

Accumulated deficit

 

(59,955

)

 

(57,434

)

Total stockholders’ equity

 

42,823

 

 

44,173

 

Total liabilities and stockholders’ equity

$

66,995

 

$

66,390

 

 

See accompanying notes.

 

3


 

Airgain, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

 

 

Three months ended March 31,

 

 

2022

 

2021

 

Sales

$

17,522

 

$

17,377

 

Cost of goods sold

 

10,366

 

 

10,480

 

Gross profit

 

7,156

 

 

6,897

 

Operating expenses:

 

 

 

 

Research and development

 

3,242

 

 

2,706

 

Sales and marketing

 

2,855

 

 

2,439

 

General and administrative

 

3,485

 

 

3,633

 

Total operating expenses

 

9,582

 

 

8,778

 

Loss from operations

 

(2,426

)

 

(1,881

)

Other (income) expense:

 

 

 

 

Interest income, net

 

 

 

(8

)

Other expense

 

10

 

 

7

 

Total other (income) expense

 

10

 

 

(1

)

Loss before income taxes

 

(2,436

)

 

(1,880

)

Provision (benefit) for income taxes

 

85

 

 

(2,117

)

Net income (loss)

$

(2,521

)

$

237

 

Net income (loss) per share:

 

 

 

 

Basic

$

(0.25

)

$

0.02

 

Diluted

$

(0.25

)

$

0.02

 

Weighted average shares used in calculating income (loss) per share:

 

 

 

 

Basic

 

10,130

 

 

9,869

 

Diluted

 

10,130

 

 

10,839

 

 

See accompanying notes.

 

4


 

Airgain, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

 

 

Three months ended March 31,

 

 

2022

 

2021

 

Net income (loss)

$

(2,521

)

$

237

 

Unrealized gain (loss) on available-for-sale securities, net of deferred taxes

 

 

 

 

Comprehensive income (loss)

$

(2,521

)

$

237

 

 

See accompanying notes.

 

5


 

Airgain, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

 

 

Three months ended March 31,

 

 

2022

 

2021

 

Total stockholders' equity, beginning balance

$

44,173

 

$

47,742

 

 

 

 

 

 

Common stock and additional paid-in capital:

 

 

 

 

Balance at beginning of period

 

106,971

 

 

100,356

 

Stock-based compensation

 

1,051

 

 

928

 

Replacement awards issued in relation to acquisition

 

 

 

40

 

Issuance of shares for stock purchase plan

 

120

 

 

1,451

 

Balance at end of period

 

108,142

 

 

102,775

 

 

 

 

 

 

Treasury stock:

 

 

 

 

Balance at beginning of period

 

(5,364

)

 

(5,267

)

Repurchases of common stock

 

 

 

 

Balance at end of period

 

(5,364

)

 

(5,267

)

 

 

 

 

 

Accumulated deficit:

 

 

 

 

Balance at beginning of period

 

(57,434

)

 

(47,347

)

Net income (loss)

 

(2,521

)

 

237

 

Balance at end of period

 

(59,955

)

 

(47,110

)

 

 

 

 

 

Total stockholders' equity, ending balance

$

42,823

 

$

50,398

 

 

See accompanying notes.

 

6


 

Airgain, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

Three months ended March 31,

 

 

2022

 

2021

 

Cash flows from operating activities:

 

 

 

 

Net income (loss)

$

(2,521

)

$

237

 

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

Depreciation

 

168

 

 

131

 

Impairment of fixed assets

 

8

 

 

 

Amortization of intangible assets

 

757

 

 

716

 

Stock-based compensation

 

1,241

 

 

928

 

Deferred tax liability

 

8

 

 

(2,302

)

Changes in operating assets and liabilities:

 

 

 

 

Trade accounts receivable

 

2,578

 

 

(3,944

)

Inventory

 

230

 

 

278

 

Prepaid expenses and other current assets

 

(175

)

 

(451

)

Other assets

 

7

 

 

27

 

Accounts payable

 

1,572

 

 

1,179

 

Accrued compensation

 

(735

)

 

(1,263

)

Accrued liabilities and other

 

943

 

 

527

 

Lease liabilities

 

71

 

 

17

 

Net cash provided by (used in) operating activities

 

4,152

 

 

(3,920

)

Cash flows from investing activities:

 

 

 

 

Cash paid for acquisition, net of cash acquired

 

 

 

(14,185

)

Purchases of property and equipment

 

(128

)

 

(61

)

Net cash used in investing activities

 

(128

)

 

(14,246

)

Cash flows from financing activities:

 

 

 

 

Proceeds from issuance of common stock, net

 

120

 

 

1,451

 

Net cash provided by financing activities

 

120

 

 

1,451

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

4,144

 

 

(16,715

)

Cash, cash equivalents, and restricted cash; beginning of period

 

14,686

 

 

38,348

 

Cash, cash equivalents, and restricted cash; end of period

$

18,830

 

$

21,633

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

Taxes paid

$

 

$

38

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

Right-of-use assets recorded upon adoption of ASC 842

$

 

$

3,199

 

Leased liabilities recorded upon adoption of ASC 842

$

 

$

3,519

 

Operating lease liabilities resulting from right-of-use assets

$

197

 

$

 

Accrual of property and equipment

$

 

$

13

 

 

 

 

 

 

Cash and cash equivalents

$

18,655

 

$

21,458

 

Restricted cash included in current and other assets

 

175

 

 

175

 

Total cash, cash equivalents, and restricted cash

$

18,830

 

$

21,633

 

 

See accompanying notes.

 

7


 

Airgain, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1. Description of Business and Basis of Presentation

 

Description of Business

 

Airgain, Inc. (the Company) was incorporated in the State of California on March 20, 1995; and reincorporated in the State of Delaware on August 17, 2016. The Company is a leading provider of advanced wireless connectivity solutions and technologies used to enable high performance networking across a broad range of devices and markets, including consumer, enterprise, and automotive. The Company’s headquarters is in San Diego, California.

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Interim financial results are not necessarily indicative of results anticipated for the full year. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, from which the balance sheet information herein was derived. The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and investments have been eliminated in consolidation.

 

Segment Information

 

The Company’s operations are located primarily in the United States and most of its assets are located in San Diego, California, and Plymouth, Minnesota.

 

The Company operates in one segment related to the sale of wireless connectivity solutions and technologies. The Company’s chief operating decision-maker is its chief executive officer, who reviews operating results on an aggregate basis and manages the Company’s operations as a single operating segment.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Reclassifications

 

Certain amounts in the prior year financial statements have been reclassified to conform to the presentation of the current year financial statements including the reclassification of sales and marketing expenses in the Company's consolidated statement of operations as well as reclassification of sales channel and geographic location in the disaggregated revenue disclosures in Note 18.

 

Note 2. Summary of Significant Accounting Policies

 

During the three months ended March 31, 2022, there have been no material changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

 

Restricted Cash

 

As of March 31, 2022 and December 31, 2021, the Company had $175,000 in cash on deposit to secure certain lease commitments; $40,000 of which is short-term in nature and recorded in prepaid expenses and other current assets and $135,000, of which is restricted for more than twelve months and recorded in other assets in the Company’s consolidated balance sheet.

 

8


 

Trade Accounts Receivable

 

Trade accounts receivable is adjusted for all known uncollectible accounts. The policy for determining when receivables are past due or delinquent is based on the contractual terms agreed upon. Accounts are written off once all collection efforts have been exhausted. An allowance for doubtful accounts is established when, in the opinion of management, collection of the account is doubtful. No allowance for doubtful accounts was recorded as of March 31, 2022 and December 31, 2021.

 

Inventory

 

The majority of the Company’s products are manufactured by third parties that retain ownership of the inventory until title is transferred to the customer at the shipping point. In some situations, the Company retains ownership of inventory which is held in third party contract manufacturing facilities. In certain instances, shipping terms are delivery-at-place and the Company is responsible for arranging transportation and delivery of goods ready for unloading at the named place. In those instances, the Company bears all risk involved in bringing the goods to the named place and records the related inventory in transit to the customer as inventory on the accompanying consolidated balance sheets. In February 2022, the Company announced that it was closing its facility located in Scottsdale, Arizona where certain of its products were previously manufactured.

 

Inventory is stated at the lower of cost or net realizable value. For items manufactured by the Company, cost is determined using the weighted average cost method. For items manufactured by third parties, cost is determined using the first-in, first-out method (FIFO). Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. Provisions for excess and obsolete inventories are estimated based on product life cycles, quality issues, and historical experience and were $224,000 and $47,000 as of March 31, 2022, and December 31, 2021, respectively.

 

Business Combinations

 

The Company applies the provisions of ASC 805, Business Combinations, in accounting for its acquisitions. It requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed, at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the acquisition date fair values of the net assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, as well as the contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

 

In addition, uncertain tax positions and tax-related valuation allowances assumed, if any, in connection with a business combination are initially estimated as of the acquisition date. The Company re-evaluates these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to the preliminary estimates being recorded to goodwill if identified within the measurement period. Subsequent to the end of the measurement period or final determination of the estimated value of the tax allowance or contingency, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect the income tax provision (benefit) in the consolidated statements of operations and could have a material impact on the results of operations and financial position.

 

Revenue Recognition

 

On January 1, 2019, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606) using the modified retrospective method. The Company generates revenue mainly from the sale of wireless connectivity solutions and technologies. A portion of revenue is generated from service agreements and data subscription plans with certain customers. The revenue generated from service agreements and data subscription plans is insignificant. The Company recognizes revenue to depict the transfer of control of the promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. Control transfers to customers either when the products are shipped to or received by the customer, based on the terms of the specific agreement with the customer. Revenue from NimbeLink's data subscription plans is recognized over the period of the subscription.

 

The Company records revenue based on a five-step model in accordance with ASC 606 whereby the company (i) identifies the contract(s) with the customer, (ii) identifies the performance obligations in the contract, (iii) determines the transaction price, (iv) allocates the transaction price to the performance obligation(s) in the contract and (v) recognizes the revenue when (as) the entity satisfies performance obligations. The Company only applies the five-step model when it is probable that the entity will collect substantially all of the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

 

9


 

For product sales, each purchase order, along with existing customer agreements, when applicable, represents a contract from a customer and each product sold represents a distinct performance obligation. The contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s revenue is recognized on a “point-in-time” basis when control passes to the customer. The revenue from service contracts is recognized either at a "point-in-time" or “over time” based on the terms and conditions in the contract. Revenue from data subscription plans are recognized “over time”.

 

The Company offers return rights and/or pricing credits under certain circumstances. A reserve for potential rights of return of $168,000 and $109,000 was recorded as of March 31, 2022 and December 31, 2021, respectively.

 

The Company’s contracts with customers do not typically include extended payment terms. Payment terms vary by contract and type of customer and generally range from 30 to 90 days from delivery.

 

The Company provides assurance-type warranties on all product sales ranging from one to two years. The estimated warranty costs are accrued for at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure. The Company has recorded a warranty reserve of $205,000 as of March 31, 2022 and $58,000 as of December 31, 2021.

 

The Company has opted to not disclose the portion of revenues allocated to partially unsatisfied performance obligations, which represent products to be shipped within 12 months under open customer purchase orders, at the end of the current reporting period as allowed under ASC 606. The Company has also elected to record sales commissions when incurred, pursuant to the practical expedient under ASC 340, Other Assets and Deferred Costs, as the period over which the sales commission asset that would have been recognized is less than one year.

 

There were no contract assets as of March 31, 2022 and December 31, 2021. As of March 31, 2022 and December 31, 2021, the Company recorded $133,000 and $79,000 of contract liabilities, respectively.

 

Shipping and Transportation Costs

 

Shipping and other transportation costs—expensed as incurred—were $158,000 and $39,000 for the three months ended March 31, 2022 and 2021, respectively. These costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.

 

Fair Value Measurements

 

The carrying values of the Company’s financial instruments, including cash, trade accounts receivable, accounts payable, accrued liabilities and deferred purchase price obligations approximate their fair values due to the short maturity of these instruments.

Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. The Company follows a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below:

Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable in active markets.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. In December 2019, the FASB issued ASU 2019-10, Effective Dates which updated the effective dates of adoption of ASU 2016-13. ASU 2016-13 is effective, for Smaller Reporting Companies, for annual and interim periods in fiscal years beginning after December 15, 2022. Companies are required to adopt the standard using a modified retrospective adoption method. The Company continues to evaluate the impact of the standard on its consolidated financial statements.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326), Targeted Transition Relief, which provides entities that have certain instruments within the scope of ASC 326-20, Financial Instruments-Credit Losses-Measured at

10


 

Amortized Cost, with an option to irrevocably elect the fair value option for eligible instruments. The effective date and transition methodology for this standard are the same as in ASU 2016-13. The Company continues to evaluate the impact of the standard on its consolidated financial statements.

 

In April 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification.The ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2021-04 on its consolidated financial statements.

 

Note 3. Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average shares of common stock outstanding for the period. Diluted net income per share is calculated by dividing net income by the weighted average shares of common stock outstanding for the period plus amounts representing the dilutive effect of securities that are convertible into common stock. The Company calculates diluted net income per common share using the treasury stock method.

The following table presents the computation of net income (loss) per share (in thousands except per share data):

 

Three months ended March 31,

 

 

2022

 

2021

 

Numerator:

 

 

 

 

Net income (loss)

$

(2,521

)

$

237

 

Denominator:

 

 

 

 

Basic weighted average common shares outstanding

 

10,130

 

 

9,869

 

Plus dilutive effect of potential common shares

 

 

 

970

 

Diluted weighted average common shares outstanding

 

10,130

 

 

10,839

 

Net income (loss) per share:

 

 

 

 

Basic

$

(0.25

)

$

0.02

 

Diluted

$

(0.25

)

$

0.02

 

Potentially dilutive securities (in common stock equivalent shares) not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in thousands):

 

 

Three months ended March 31,

 

 

2022

 

2021

 

Stock options and restricted stock

 

1,960

 

 

371

 

 

Note 4. Business Combinations

 

On January 7, 2021, the Company entered into a Stock Purchase Agreement, by and among the Company, NimbeLink Corp., the sellers set forth therein (the Sellers) and Scott Schwalbe in his capacity as seller representative (the Purchase Agreement). NimbeLink is an industrial Internet of Things (IoT) company focused on the design, development and delivery of edge-based cellular connectivity solutions for enterprise customers. The acquisition of NimbeLink supports the Company's transition toward becoming a more system-level company and will play an important role in the Company's overall growth strategy to broaden market diversification, especially within the industrial IoT space.

 

Pursuant to the Purchase Agreement, at the closing on January 7, 2021, the Company acquired all of the outstanding stock of NimbeLink for an upfront cash purchase price of approximately $15.0 million, subject to working capital and other customary adjustments of $1.0 million and $0.7 million in deferred cash payments due to the Sellers fifteen months after the close of the transaction. In addition, NimbeLink’s former security holders are entitled to receive $8.0 million in contingent consideration, due to achieving certain revenue targets in 2021. The Company assumed unvested common stock options of continuing employees and service providers.

 

11


 

Acquisition Consideration

 

The following table summarizes the fair value of purchase consideration to acquire NimbeLink (in thousands):

Cash

$

15,991

 

Deferred payments(1)

 

728

 

Contingent consideration(2)

 

5,986

 

Replacement options(3)

 

40

 

Total purchase consideration

$

22,745

 

 

(1) The fair value of the holdback payment was determined by discounting to present value, payments totaling $0.7 million expected to be made to NimbeLink fifteen months after the close of the transaction.

(2) The fair value of contingent consideration is based on applying the Monte Carlo simulation method to forecast achievement under various contingent consideration events which may result in up to $8 million in payments subject to the acquired business’s satisfying certain revenue targets in 2021. Key inputs in the valuation include forecasted revenue, revenue volatility and discount rate. Underlying forecast mathematics were based on Geometric Brownian Motion in a risk-neutral framework and discounted back to the applicable period in which the accumulative thresholds were achieved at discount rates commensurate with the risk and expected payout term of the contingent consideration.

(3) Represents the pre-combination stock compensation expense for replacement options issued to NimbeLink employees.

 

Purchase Price Allocation

 

The following is an allocation of purchase price as of the closing date based upon an estimate of the fair value of the assets acquired and liabilities assumed by the Company in the acquisition (in thousands):

 

Cash

$

1,806

 

Accounts receivable

 

1,127

 

Inventory

 

1,671

 

Prepaids and other current assets

 

141

 

Property and equipment

 

151

 

Right of use assets

 

402

 

Other assets

 

194

 

Identified intangible assets

 

14,065

 

Accounts payable

 

(654

)

Accrued compensation

 

(139

)

Accrued expenses and other current liabilities

 

(432

)

Short-term lease liabilities

 

(78

)

Long-term lease liabilities

 

(324

)

Deferred tax liabilities

 

(2,330

)

Identifiable net assets acquired

 

15,600

 

Goodwill

 

7,145

 

Total purchase price

$

22,745

 

The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):

Category

Estimated life
(in years)

Fair value

 

Finite-lived intangible assets:

 

 

 

Market-related intangibles

5

$

1,700

 

Customer relationships

5

 

8,950

 

Developed technology

12

 

2,600

 

Covenants to non-compete

2

 

115

 

Indefinite-lived intangible assets:

 

 

 

In-process research and development

N/A

 

700

 

Total identifiable intangible assets acquired

 

$

14,065

 

 

Assumptions in the Allocations of Purchase Price

 

Management prepared the purchase price allocations and in doing so considered or relied in part upon reports of a third party valuation expert to calculate the fair value of certain acquired assets, which primarily included identifiable intangible assets and inventory, and the portions of the purchase consideration expected to be paid to NimbeLink securityholders in the future, as described above. Certain NimbeLink securityholders that are employees are not required to remain employed in order to receive the deferred payments and

12


 

contingent consideration; accordingly, the fair value of the deferred payments and contingent consideration have been accounted for as a portion of the purchase consideration.


Estimates of fair value require management to make significant estimates and assumptions. Contingent consideration payable as of March 31, 2022 and December 31, 2021
, was $8.0 million. The contingent consideration balance was recorded to deferred purchase price liabilities in other current liabilities in the Company's condensed consolidated balance sheet. The contingent consideration of $8.0 million and deferred payment of $0.6 million were paid in April 2022.

 

The goodwill recognized is attributable primarily to the acquired workforce, expected synergies, and other benefits that the Company believes will result from integrating the operations of the NimbeLink business with the operations of the Company. Certain liabilities included in the purchase price allocations are based on management’s best estimates of the amounts to be paid or settled and based on information available at the time the purchase price allocations were prepared.

 

The fair value of the customer relationships was determined using the multi-period excess earnings method (MPEEM). MPEEM estimates the value of an intangible asset by quantifying the amount of residual (or excess) cash flows generated by the asset and discounting those cash flows to the present. Future cash flows for contractual and non-contractual customers were estimated based on forecasted revenue and costs, taking into account the growth rates and contributory charges. The fair value of market-related intangible assets, developed technology, and in-process research and development (IPR&D) was determined using the Relief-from-Royalty method. The Relief-from-Royalty method is a specific application of the discounted-cash-flow method, which is a form of the income approach. It is based on the principle that ownership of the intangible asset relieves the owner of the need to pay a royalty to another party in exchange for rights to use the asset. Key assumptions to estimate the hypothetical royalty rate include observable royalty rates, which are royalty rates in negotiated licenses and market-based royalty rates which are royalty rates found in available market data for licenses involving similar assets. Developed technology will begin amortizing immediately and IPR&D will begin amortizing upon the completion of each project. During the three months ended March 31, 2021, all IPR&D projects were completed and transferred to developed technology, with a twelve-year estimated life. The fair value of non-compete intangible assets was estimated using the with-and-without method. The with-and-without method estimates the value of an intangible asset by quantifying the loss of economic profits under a hypothetical condition where only the subject intangible does not exist and needs to be re-created. Projected revenues, operating expenses and cash flows are calculated in each "with" and "without" scenario and the difference in the cash flow is discounted to present value. Inventory was valued at net realizable value. Raw materials were valued at book value and finished goods were valued assuming hypothetical revenues from finished goods adjusted for disposal costs, profit attributable to the seller and holding costs. An inventory step-up of $0.4 million is included in the purchase price allocation above.

 

The Company assumed liabilities in the acquisition which primarily consist of accrued employee compensation and certain operating liabilities. The liabilities assumed in these acquisitions are included in the respective purchase price allocations above.


Goodwill recorded in connection with the NimbeLink acquisition was
$7.1 million. The Company does not expect to deduct any of the acquired goodwill for tax purposes. Also see Note 8, Intangible Assets for further information on intangible assets related to the NimbeLink acquisition.
 

Note 5. Cash and Cash Equivalents

The following tables show the Company’s cash and cash equivalents by significant investment category as of March 31, 2022 and December 31, 2021 (in thousands):

 

 

March 31, 2022

 

 

Amortized
cost

 

Estimated fair value

 

Cash and cash equivalents

 

Cash

$

9,295

 

$

9,295

 

$

9,295

 

Level 1:

 

 

 

 

 

 

Money market funds

 

9,360

 

 

9,360

 

 

9,360

 

Total

$

18,655

 

$

18,655

 

$

18,655

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

Amortized
cost

 

Estimated fair value

 

Cash and cash equivalents

 

Cash

$

3,702

 

$

3,702

 

$

3,702

 

Level 1:

 

 

 

 

 

 

Money market funds

 

10,809

 

 

10,809

 

 

10,809

 

Total

$

14,511

 

$

14,511

 

$

14,511

 

 

 

13


 

Note 6. Inventory

Inventories are comprised of the following as of March 31, 2022 and December 31, 2021(in thousands):

 

March 31, 2022

 

December 31, 2021

 

Raw materials

$

6,544

 

$

7,955

 

Finished goods

 

2,399

 

 

1,041

 

Reserves

 

(224

)

 

(47

)

Total Inventory

$

8,719

 

$

8,949

 

 

As of March 31, 2022 and December 31, 2021, $5.7 million and $3.8 of raw materials, respectively, and $0.7 million and $0.4 million of finished goods inventories, respectively, are on consignment at the Company's contract manufacturers.

 

Note 7. Property and Equipment

Depreciation and amortization of property and equipment is calculated on the straight-line method based on the shorter of the estimated useful life or the term of the lease for tenant improvements and three to fifteen years for all other property and equipment. Property and equipment consist of the following (in thousands):

 

March 31, 2022

 

December 31, 2021

 

Computers and software

$

637

 

$

657

 

Furniture, fixtures, and equipment

 

411

 

 

398

 

Manufacturing and testing equipment

 

4,756

 

 

4,700

 

Construction in process

 

40

 

 

40

 

Leasehold improvements

 

979

 

 

932

 

Property and equipment, gross

 

6,823

 

 

6,727

 

Less accumulated depreciation

 

(4,176

)

 

(4,029

)

Property and equipment, net

$

2,647

 

$

2,698

 

Depreciation expense was $0.2 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively.

 

Note 8. Intangible Assets

The following is a summary of the Company’s acquired intangible assets (dollars in thousands):

 

March 31, 2022

 

 

Weighted
average
amortization
period
(in years)

 

Gross
carrying
amount

 

Accumulated
amortization

 

Net
carrying amount

 

Market related intangibles

5

 

$

1,820

 

$

540

 

$

1,280

 

Customer relationships

7

 

 

13,780

 

 

5,015

 

 

8,765

 

Developed technologies

11

 

 

4,380

 

 

997

 

 

3,383

 

Covenants to non-compete

2

 

 

115

 

 

71

 

 

44

 

Total intangible assets, net

 

 

$

20,095

 

$

6,623

 

$

13,472

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

Weighted
average
amortization
period
(in years)

 

Gross
carrying
amount

 

Accumulated
amortization

 

Net
carrying amount

 

Market related intangibles

5

 

$

1,820

 

$

454

 

$

1,366

 

Customer relationships

7

 

 

13,780

 

 

4,447

 

 

9,333

 

Developed technologies

11

 

 

4,380

 

 

908

 

 

3,472

 

Covenants to non-compete

2

 

 

115

 

 

57

 

 

58

 

Total intangible assets, net

 

 

$

20,095

 

$

5,866

 

$

14,229

 

 

14


 

Estimated annual amortization of intangible assets for the next five years and thereafter is shown in the following table (in thousands):

 

Estimated future amortization

 

2022 (remaining nine months)

$

2,269

 

2023

 

2,969

 

2024

 

2,968

 

2025

 

2,958

 

2026

 

557

 

Thereafter

 

1,751

 

Total

$

13,472

 

Actual amortization expense to be reported in future periods could differ from these estimates as a result of acquisitions, divestitures, and asset impairments, among other factors. Amortization expense was $0.8 million and $0.7 million for the three months ended March 31, 2022 and 2021, respectively.

 

Note 9. Accrued Liabilities and Other

 

Accrued liabilities and other is comprised of the following (in thousands):

 

 

 

 

 

 

 

March 31, 2022

 

December 31, 2021

 

Advanced payments from contract manufacturer

$

1,648

 

$

682

 

Accrued expenses

 

642

 

 

1,277

 

VAT payable

 

339

 

 

339

 

Accrued income taxes

 

318

 

 

258

 

Contract liabilities

 

133

 

 

79

 

Other current liabilities

 

696